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Rental yields should be sustained in 2017 by a reduction in supply of housing stock and moderate house price growth, Carter Jonas predicts.

However, the research arm of the agent has forecast that total returns in the residential market will hit 5.6% in 2017 – well below the five-year annual average of 13%.

Darren Yates, head of research for Carter Jonas, said the housing market has been affected by Stamp Duty tax changes that have reduced the appetite of smaller investors in particular, with many expecting to see higher tax bills as the phased removal of mortgage tax relief begins in April.

He said: “With weaker capital value appreciation forecast over the coming year, investors are likely to adopt a more income focused approach to residential property. By focusing on areas that benefit from a balance of strong rental yields and growing local economies, investors can ensure good returns.”

Yates predicted that while Brexit negotiations are likely to dominate the political and economic landscape for the foreseeable future, he said the UK property market is in any case coming to the natural end of a long growth cycle that has also contributed to lower forecasts for returns.

He added: “Total returns are forecast to moderate across the board, but property remains an attractive proposition for many investors compared with other asset classes over the medium to long term.

“Property yields continue to offer a significant margin over bonds and equities, as well as delivering a stable income with the ability to add value through proactive asset management.”